Lawsuit Drives Hotelier Into Chapter 11

The company founded by legendary hotelier John Q. Hammons says the bankruptcy is a strategic response to the litigation with an investor.
Matthew HellerJune 27, 2016

A Missouri-based hotel company founded by legendary hotelier John Q. Hammons has filed for bankruptcy protection amid litigation over the ownership of 35 of its properties.

John Q. Hammons Hotels & Resorts CEO Jacqueline Dowdy said the company was “financially stable” but filed a Chapter 11 bankruptcy petition as a strategic response to the litigation with Jonathan Eilian, the former managing director of private-equity giant Starwood Capital Group.

In 2005, Eilian entities loaned Hammons $300 million so he could take publicly-owned John Q. Hammons Hotels private. A trial had been set for July 26 in Delaware to decide whether the company must sell Eilian 35 hotels that were excluded from the buyout.

The bankruptcy filing stays all legal proceedings. “A financial restructuring associated with Chapter 11 will help to provide the necessary framework and the safeguards to let us be there for our creditors, lenders, employees, guests and members of the community who benefit from the continued generosity of our legendary hotelier,” Dowdy said Monday at a news conference.

“We foresee this being a strategic and necessary move in the best interests of those to which we have financial responsibility,” she added.

Hammons, who died in 2013, developed more than a hundred hotels during his lifetime. The 2005 buyout by a partnership between Hammons and Elian involved some 43 hotels owned by John Q. Hammons Hotels.

“The deal’s complicated structure was devised to provide Mr. Hammons with cash without triggering capital gains taxes associated with a sale,” The Wall Street Journal said.

The Delaware court case involves a provision of the deal that gave Eilian right of first refusal to buy the hotels that weren’t included in the buyout. After Hammons’ death, a judge ruled the provision was valid.